NJ Business Matters: The Blog of the CIANJ

Eleven Committees Meet To Discuss Maybe, Possibly, Spending

The Lame Duck session rolls on today with the meeting of 11 legislative committees - seven in the Assembly and four in the Senate - to discuss issues ranging from MVC fees to burdening restaurant owners with a new mandate. However, that all happens within the context of today's Star-Ledger story which notes that Democrats have not decided what, if anything, constitutes appropriate spending for a state with no money and a structural deficit that equals about one-third of the total budget.

"There’s balance in life," said Senate President Richard Codey (D-Essex), who favors some extra spending. "There’s people who say, ‘We can’t afford the money.’ There’s other people who are saying, ‘No, aren’t we a compassionate society?’"

Codey recently sparred with Senate Budget and Appropriations chair Barbara Buono (D-Middlesex) after she said her panel would not consider any bills today requiring additional cash — including measures he backs to refund some taxes paid by victims of Madoff’s Ponzi scheme and increase training and drug-screening for staff at state psychiatric hospitals and other facilities.

The trouble with Senate President Codey's position is that New Jersey is in the seemingly impossible position of simultaneously being a high tax state and flat broke. The reason we cannot afford much compassion now is not because of stingy taxpayers and legislators, but because previous decisions made in Trenton put us in this position.

That whole fault not being in the stars, but in ourselves thing.

Cutting Gov't By Reshaping Institutions

Earlier this year, we pointed readers to a groundbreaking study produced by the Mercatus Center at George Mason University - Institutions Matter: Can New Jersey Reverse Course? Today, that study's co-author, Eileen Norcross, takes to the op-ed pages of the New York Post to offer a bold plan for Gov-elect Chris Christie.

The two-step agenda involves scrapping the existing Property Tax Relief Fund, which has failed to produce property tax relief or increase performance in urban school districts, and alleviate local governments of unfunded state mandates regarding personnel.

By rejecting the state Supreme Court's Abbott funding requirements, the new executive can restore the Legislature's proper role as the state's chief policymaking body. After all, on matters such as spending and education, it's the elected bodies of state government, not the courts, that are best placed to act accountably.

On top of rubbing out the PTRF, the new governor should focus on the other cause of New Jersey's economic tailspin -- unfunded state mandates. Rather than top-down rule from Trenton, he should afford local governments a greater role in charting their own fiscal course.

For too long, unfunded mandates have stifled New Jersey's localities. The most costly of these are state-negotiated binding-arbitration agreements that impose police salaries and benefits on local governments. Offering municipalities greater flexibility and control over their own spending and budget priorities will encourage innovation in the delivery of public goods and reduce the need for extraordinarily high property taxes.

The entire piece is a must read and available here. Marginal changes will not fix a fundamentally dysfunctional system.

Gov Orders Cabinet Heads to Cut $400 Million

In light of Treasury information detailing tax receipts coming in below expectations, Governor Corzine has ordered his department heads to present a total of $400 million in budget savings by December 1. The governor's statement is available here.

Last week, we learned that first quarter tax collections were more than $200 million below projections. That only exacerbates a projected $8 - $10 billion budget deficit already forecast for next year. Our applause to the governor for taking prudent steps to ensure that shortfall does not become worse. We also join in his call for the legislature to avoid passing bills that increase spending during the lame duck session.

Gov Plans Legislative Address on the Economy

Governor Corzine has announced that he will address a special joint session of the legislature on October 16th to highlight his initiatives to improve New Jersey's economy. This follows his economic summit and legislative action on Monday to make improvements to New Jersey's tax code.

We look forward to the Governor's comments. However, it is important to stress once again that there is no substitute for a low tax and regulatory structure. No public works projects, tax credit or job creation program can undo a corporate tax ranking of 50th.

The Governor's plan must acknowledge this reality and further advance the healthy spending reductions he began as part of this year's budget. Listen to this morning's gubernatorial interview with WCBS radio by clicking here.

Putting a Cork in Spending

You may have read a thing or two about Wall Street's immediate outlook being more than a little uncertain, and that the ripple will have an impact on New Jersey's budget. Now, Governor Corzine is ordering his department heads to cut costs by 5% in anticipation of a future downturn. This follows a week of bi-partisan prodding by the legislature. The Governor also wisely insisted that the legislature pass no bills that would increase spending, unless the law is related to economic stimulus.

The moves are worthy of support and the legislature would be wise to interpret "economic stimulus" narrowly and not have it become the latest buzz word to justify increased spending. So far, there have been no signals of that intent.

"There are a lot of moving parts at the same time, and one thing is absolutely certain -- we are identifying hundreds of millions of dollars in additional cuts that may be necessary." [snip]

Senate Majority Leader Stephen Sweeney (D-Gloucester), a member of the Budget and Appropriations Committee, said the Legislature "absolutely" should heed Corzine's call to cork spending until more is known about the revenue projections.

"We gotta get a new set of numbers," Sweeney said.

Those new numbers will be available next month and will likely spark a new round of legislative action.

Budget Chair Wants to Consider Spending Cuts Now

Senator Barbara Buono, Chairwoman of the Senate Budget and Appropriations Committee is urging the Governor to consider mid-year spending cuts in anticipation of sagging state tax collections due to Wall Street's turmoil and the general economic slowdown.

"Hopefully, we won’t have to make cuts in the current budget, but we should be prepared for a worst-case scenario," Buono said. "Regardless of the success of the Wall Street bailout, its impact on New Jersey, both in terms of financial services workers and the industry itself, will be significant."

Earlier this week, Assembly and Senate Republicans made a similar, albeit stronger, request.

New Jersey's income tax structure is "progressive" and relies on the top 1% of wage earners to pay 40% of all income taxes collected. That creates a reliance on high-paying industries - such as financial services - and a slowdown in just one industry can have a significant impact on the state budget.

Here's what no one has mentioned in the public debate: high-wage earners are often boosted into the top 1% based on bonuses and other income sources outside their normal salary. Because of that, their net income is not known with certainty until mid-April of the following year. That puts the legislature and the administration in a position of being forced to forecast the loss, or wait until actual numbers are known - which could create a budget panic. We applaud Sen. Buono for calling for the creation of contingency plans now. 

We Promise Not To Use The Words "Lock Box"

The State Treasurer has just given the legislature somewhat-surprising news - the state now expects to take in about $533 million more in revenue that was originally anticipated. However, the news came with a signal from the Corzine Administration that we here at CIANJ applaud,

"As the governor has said since February, we are at a turning point," state Treasurer David Rousseau told the Senate Budget and Appropriations Committee. "The time has come for us, together, to say: no more."

The short term increase to the State Treasury does not eliminate New Jersey's long-term budgetary issues, such as debt, pension and benefit obligations and an expected decrease in tax receipts next year. The Governor's original budget message was one that began New Jersey on the road to fiscal sanity. Today's news does not change that, and does not lessen the imperative that the legislature deliver a budget that does not increase spending over last year.

No Christmas Tree, No Christmas Tree

Senator Barbra Buono, Chair of the Senate Budget and Appropriations Committee, has expressed her support for the elimination of so-called Christmas Tree spending in this year's budget. The budget items add millions of dollars to the state budget to fund pet projects of legislators. Following an ethics tussle regarding the grants, they were reduced to a total of $112 million last year.

CIANJ supports Sen. Buono's recommendation as an effort to protect New Jersey's overburdened taxpayers, and it appears she has bi-partisan support,

"I believe we need to restore balance to the burden all of us must share during these extremely painful economic times," [Buono] said.

The budget adopted last June included an estimated $112 million for additions for legislative districts, the lowest total since Democrats regained control of the Statehouse in 2002.

Sen. Leonard Lance (R-Hunterdon), a veteran budget committee member, said he agrees with Buono that there is no room for such spending, commonly known as "Christmas tree" grants, given that Corzine is proposing deep cuts to municipalities, hospitals, nursing homes, colleges and other groups.

This budget, like all, should be about the role of government in our lives. Some Christmas Tree items may be worthwhile causes, but there are many worthwhile causes - why don't taxpayers pay for them all? We see Sen. Buono's recommendation and Sen. Lance's support as a positive step in that conversation.

Early Retirement, Later Costs

Yesterday, State Treasurer David Rousseau told the Assembly Budget Committee that the Governor's plan to entice state workers into early retirement would save NJ taxpayers $136 million this year and $161 million next year - IF it is approved by May 15th. That's unlikely to happen.

While we support the Governor's effort to reduce the government's payroll, New Jersey has been down the road of early retirements before. Multiple times, in fact. The result has always been the same - workers take the incentive and taxpayers pay retirees more money than they would have in retirement. Then, the now-vacated positions are filled in short order, meaning the size of government is not reduced.

Governor Corzine promises this plan will be different, because the Administration will not fill more than 10% of vacated positions. However, the Gov cannot dictate that to future Governors or future legislatures. Taxpayer protection beyond this Governor would be minimal.

Corzine is correct when he says that the alternative, layoffs, is nearly impossible because of current civil service laws. In our opinion, that's a great argument for reforming those civil service laws and not for trying the same failed policy again.

Fortunately, there's still time.

Hangin' Tough

We don't agree with Sen. Sweeney on many issues, but during the budget crisis of 2006, the Senator (who is also a Business Rep. for Iron Workers Local 399) was one of few voices within his party willing to admit that public employee costs were the primary reason for out-of-control spending, and he worked to address it.

Advocates for the Governor's toll road proposal claim that debt service is consuming an unacceptably high share of our budget. A reminder that in the last ten years, employee benefits increased by $4.3 billion, more than three times the rate of spending increases on debt. Sunday's Asbury Park Press outlined the Senators "outrageous" proposal to bring public employees more in line with the private sector, including,

• Reduce paid holidays, not vacation days, from 13 to 10.

• Bar married employees from receiving health benefits from more than one public employer. Couples now can have the state pay for two health plans.

• Make employees with state health benefits pay at least 10 percent of the premium. (When Sweeney proposed the bill, state employees paid nothing other than small co-pays.)

Only 10 paid holidays?! Surely you jest.

Had Sen. Sweeney's proposals become law, then the budget would have saved $1 billion this year. Maybe they're worth looking at again? Especially given half of New Jersey residents prefer "steep budget cuts" to increased taxes or tolls.